Finland's 2015 budget to break EU rules: official

JuhanaRossi

HELSINKI--Finland's budget deficit will be so large in 2015 that it will violate the European Union's budget-balance rules designed to fix the euro zone's rickety public finances, the highest-ranking civil servant at Finland's Ministry of Finance said Thursday.

A breach of these binding rules would mark a humiliation for Finland which only a few years ago was classified as a fiscally responsible euro area member and thus a natural ally of Germany, Europe's economic and political powerhouse.

"According to the latest estimates, the structural deficit of Finland's public finances will deviate significantly from the limit set in the EU's Fiscal Stability Treaty and the Finnish law in which this limit is enshrined," Martti Hetemaki, Permanent Secretary of Finland's Ministry of Finance, said at a news conference where Finland presented its 2015 budget.

Before the financial crisis in 2008. Finland enjoyed robust output growth and public finances. But since then, Finland's export-oriented economy has stagnated, and its annual GDP is still 5% below its precrisis high of 2008.

The European Union introduced in 2013 new and stricter fiscal rules for countries using the euro. The rules were a response to the sovereign debt crisis which put future of the common currency in doubt.

The EU's new fiscal rules, whose goal is to keep public debt in check, limit euro area members' structural public deficits to less than 0.5% relative of their national outputs.

Violation of the budget-balance rule could result in a formal rebuke from the European Commission which is the EU's executive arm. If a transgressor country doesn't address its fiscal problems, it could ultimately face official sanctions by the EU.

Finland's central government spending will be 53.7 billion euros in total in 2015, according to the budget plan outlined on Thursday. The government's revenue is projected to be at 49.2 billion euros. The gap will be closed with new net borrowing that will amount to EUR4.5 billion.

Finland's central government budget has been in the red continuously since 2009. In parallel Finland's gross public debt--as defined by the EU rules--has nearly doubled from EUR54.6 billion to EUR95.7 billion at the end of 2013, according to Finland's national statistics agency.

Credit rating agency Standard & Poor's warned in April that it could strip Finland of its triple-A credit rating within the next two years unless "clear signs emerge that Finland's negative economic and fiscal debt trends are being reversed."

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